Assume the Economy Is Initially Operating at the Natural Level

question 11

Multiple Choice

Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for a tax cut. This fiscal expansion will, in the medium run, have no effect on which of the following?

• A) Output and the interest rate.
• B) The interest rate and unemployment.
• C) The price level and the interest rate.
• D) Unemployment and the price level.
• E) Output and investment.

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Definitions:

GICs

A financial vehicle in Canada, Guaranteed Investment Certificates offer investors a set return rate over a defined period.

Simple Interest

Interest calculated on the principal or original amount of a loan or investment, without compounding.

GICs

Guaranteed Investment Certificates (GICs) are Canadian investment vehicles offering a guaranteed rate of return over a fixed period of time.

Investor

An individual or organization that allocates capital with the expectation of achieving a financial return.